DUBAI, April 8 (Reuters) - Dubai's main stock market posted its biggest gain in three weeks on Tuesday as real estate investment trust Emirates REIT listed on the smaller of the two markets, NASDAQ Dubai, following the emirate's first initial public offer in five years.

Shares in Emirates REIT closed at $1.44, up 5.9 percent from the IPO price, with 21.4 million shares changing hands out of a total of 128.68 million sold in the $175 million offer, which was 3.5 times oversubscribed.

"I think it was a very good start," said Sebastien Henin, head of asset management at The National Investor. "The company listed on NASDAQ Dubai and usually investors don't really like that."

Dubai's equity trading is heavily concentrated on the main exchange, Dubai Financial Market (DFM), but that market requires IPOs to offer at least 55 percent of a company, which discourages some potential issuers. NASDAQ Dubai has looser requirements but less liquidity and fewer listed stocks.

Emirates REIT's IPO price was roughly equal to its book value, which Henin said was "a perfect approach" to valuation.

"We should expect the price of the stock to be aligned with the net asset value," he said. "The stock price shouldn't be too volatile and its risk profile will be very different from that of developers.

The successful listing buoyed sentiment on the DFM, where the index added 1.9 percent to 4,743 points. Lender Emirates NBD contributed most to the move, jumping 6.8 percent to 9.60 dirhams, its highest level since September 2008.

"Emirates NBD has been doing well recently and for a number of reasons," said Amer Khan, a senior executive officer at Shuaa Asset Management.

In addition to offering investors a way to bet on Dubai's booming economy and having an attractive valuation compared to other UAE banks, Emirates NBD may also post large one-off gains if it reclassifies its large exposure to the Dubai World conglomerate as performing loans; an ENBD executive told Reuters on Monday that might happen this year.

Some fund managers expect ENBD eventually to relax the tight 5 percent cap on foreign ownership in its shares, as other local companies have been doing.

A few other property firms and banks also gained on Tuesday. Shares in contractor Arabtec rose 6.1 percent.

Shares in bourse operator DFM added 3.9 percent after a top Dubai economic policymaker said on Monday an agreement to merge it with the Abu Dhabi Securities Exchange had been reached in principle, though nothing had been finalised.

Abu Dhabi's index edged down 0.1 percent to 5,007 points on Tuesday but stayed above the psychologically important 5,000-point mark. Telecommunications operator Etisalat , down 0.9 percent, was the biggest drag as it continued to decline after paying out its 2013 dividend last Thursday.

Egypt's index rose 2.3 percent to 7,705 points, regaining some ground after a sell-off that began in late March. However, one-day recoveries have in the last two weeks been followed by even deeper drops.

"At this stage it is very difficult to say whether that specific correction is overdone," said Khan from Shuaa Asset Management.

Profit-taking, which market players say was amplified by heavy leverage, started when former army chief Abdel Fattah al-Sisi said he would run for president; local investors, who largely support him, had built up positions in anticipation of the announcement.